QUESTION: 53 Exam Topic: 1 Volume A

Which one of the following statements correctly identifies risks in foreign exchange forwards?

Short-term forward price fluctuations are driven by changes in the spot exchange rate, since most inter-country interest rates differentials are significant, and the effect of compounding is large for short periods of time.
Short-term forward price fluctuations are driven by changes in the spot exchange rate, since most inter-country interest rates differentials are small, and the effect of compounding is small for short periods of time.
Long-term forward price fluctuations are driven by changes in the spot exchange rate, since most inter-country interest rates differentials are small, and the effect of compounding is large for short periods of time.
Long-term forward price fluctuations are driven by changes in the spot exchange rate, since most inter-country interest rates differentials are significant, and the effect of compounding is small for short periods of time.

Answer(s): B

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QUESTION: 54 Exam Topic: 1 Volume A

Which one of the four following statements regarding foreign exchange (FX) swap transactions is INCORRECT?

FX swap is a common short-term transaction.
FX swap is normally used for hedging various currency positions.
FX swap generates more exchange rate risk than simple forward transactions.
FX swap is generally used to for funding foreign currency balances and currency speculation.

Answer(s): C

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QUESTION: 55 Exam Topic: 1 Volume A

To hedge a foreign exchange exposure on behalf of a client, a small regional bank seeks to enter into an offsetting foreign exchange transaction. It cannot access the large and liquid interbank market open primarily to larger banks. At which one of the following exchanges can the smaller bank trade the currency futures contracts?

I) The Tokyo Futures Exchange
II) The Euronext-Liffe Exchange
III) The Chicago Mercantile Exchange